Former Stockbroker Pleads Guilty to Fraud

A Simi Valley man has pleaded guilty to defrauding 31 people, including his parents, of $800,000 while he was employed as a stockbroker.

Michael Daniel McFadden, 41, entered a guilty plea in U. S. District Court in Los Angeles to three counts of securities fraud and one count of mail fraud.

McFadden, who is free on his own recognizance until his sentencing in January, faces a maximum penalty of 20 years imprisonment and fines of up to $1 million.

McFadden worked for five years at Dean Witter Reynolds Inc.’s Northridge branch on Tampa Avenue, where he defrauded customers from the spring of 1989 to the spring of 1991, said Harriet M. Rolnick, the assistant U. S. attorney prosecuting the case.

McFadden left the firm in March, 1991, when he reported his diversion of funds to his supervisor, said McFadden’s attorney, Vincent La Barbera. He was not charged until Monday and entered his plea that day.

As part of his scheme, McFadden prepared false documentation authorizing withdrawals of funds from accounts, Rolnick said. Checks were issued in customers’ names, although customers never saw them, she said.

To keep clients from knowing their accounts’ status, McFadden arranged for monthly statements to be sent to an address he controlled, Rolnick said.

McFadden used the money to pay off gambling debts to a bookie, his lawyer said Thursday.

McFadden “would take a check made out to a client and hand it to the bookie, who had come to the office,” La Barbera said. “He kept getting in deeper and deeper, and at several points he had a large person coming to threaten him and his children.”

Contacted at home, McFadden said he was sorry for the pain that he caused investors and his employers.

“You just get involved and next thing you know you’re deeper than you can handle,” said McFadden, who is now working as a distributor for a potato chip company.

“I’m ashamed for what I have done. It’s destroyed my life and my family’s life.” McFadden and his wife have four children.

McFadden’s father, Joseph, a retired salesman, said his son had managed $100,000 of his savings.

“He figured he’d hit it big and he’d pay everyone back. Just one hit,” Joseph McFadden said.

“I’d ask him how the money was doing and he would say, ‘Don’t worry about it.’ He had all the money we had.”

Most of the investors who lost money in the scheme were repaid in full by Dean Witter, although McFadden’s parents recovered only $60,000. The brokerage firm has sustained a loss of about $304,000, the amount of money taken and never returned, Rolnick said.

Some people didn’t lose anything because McFadden transferred other funds back into their accounts after taking money out, Rolnick said.

“I didn’t lose any money on it,” said Robert A. Hubina of Simi Valley. “He forged my name perfectly. He used an account in my name to run the money through.”

Aileen Chuck of Camarillo said her husband noticed that money was being taken out of her account.

“My husband noticed it and called him on it,” Chuck said. “He was such a personable guy, a nice person.”

“Mr. McFadden did the wrong thing,” La Barbera said. “He used his friends and families to take from their accounts to pay the bookie. He sold his house and gave equity to Dean Witter.”